Game companies now lean heavily on loot boxes to monetize their products. Legislators around the world are threatening to impose regulations on the boxes, claiming that they're gambling. Industry groups, however, insist that the boxes are not.
I play games that are funded with loot boxes. My favorite game of all time, Dota 2, is funded almost exclusively through loot boxes. Regulations that tightly restrict or absolutely prohibit loot boxes will definitely hurt the gaming industry and will hurt, perhaps even fatally, games I love. There will definitely be economic harm, and games companies will have to figure something out to fill the monetary gap. It's no surprise that game companies are defending the practice.
But here's the thing: loot boxes are gambling. The essential features of the transaction match those of gambling, the reward pathways and addiction mechanisms are those of gambling, and playing dumb about it, as the industry is currently doing, is a bad look.
The loot box mechanism is straightforward: you buy a box for a fixed price, and you receive a random reward. Some rewards are commonplace and low value; others are rare and high value. So far, so gambling: these essential features are found in roulette, slot machines, betting on horses, raffles, and lotteries.
The excitement loot boxes offer their buyers is comparable, too: the moment of uncertainty, the high of getting a big win, the low of missing out. This is the same high as the one gamblers enjoy. Regulators in Belgium and the Netherlands have agreed that this basic structure makes loot boxes a kind of gambling.
Game companies defend loot boxes by saying they're not the same as gambling because you can't lose with them: you always win something, even if it's not very valuable. This is a weak defense. For one thing, that consolation prize may, in fact, be worthless.
Consider Dota 2's loot boxes. They offer a number of standard, low-value prizes, along with a small chance of getting a "rare," "very rare," or "ultra rare" high-value prize. The loot boxes are designed so that if you buy as many boxes as there are standard prizes, you'll always get one of each standard prize. But if you keep on buying more copies of the same loot box in order to spin the dice yet again and have another chance at one of those rare prizes, you will, through necessity, receive duplicates of the standard items. These duplicates are, functionally, worthless: Dota 2's items are cosmetics for the game's heroes, and the heroes simply can't equip more than one copy of any given item. The first copy has value; the subsequent ones don't, as you have no way of using them.
More fundamentally, this is a red herring anyway. I couldn't claim that my roulette table, with a minimum bet of $5, somehow became "not gambling" because I promised you'd always get at least five cents back. Such a roulette table would ever-so-slightly change the economics—I wouldn't make quite as much money—but the fundamental features of the transaction are not meaningfully altered. You pay your stake, and you get a low chance of a big payout and a big chance of a negligible one. Such a scheme would, rightly, be recognized as the gambling it is.
The other argument that comes up is that loot boxes aren't gambling because there's no way of exchanging the prizes for money. Some prizes may be rare, but, per this argument, they're not valuable, because you can't exchange them for cash. This argument feels rather self-defeating: if these prizes had no value at all then people would not spend real cash to get a chance of winning them in the first place. If they truly have no economic value at all, the games companies should be giving them away for free, surely. And yet, they don't.
This argument looks even weaker in the face of services such as Valve's Community Market. The prizes from Valve's loot boxes can be sold (usually after some period of trading ineligibility, sometimes lasting a year or more) to other Steam users through Community Market. You can't sell them for "real" money—you only receive Steam credit in your account, so you can only spend it on other games or Community Market purchases—but the every dollar spent on the market originated as a real dollar. Valve also takes a commission on those sales; those Steam account dollars are backed by real money, even if Valve's the only one allowed to make the conversion.
Beyond this, there's a grey market of trading sites that allows these digital items to be directly traded for cash. Such sites may not be official, but they don't have to be official to debunk the notion that the loot box prizes are valueless.
Theres science to gambling, and its used in loot boxes, too
With loot boxes structured like gambling, it's not surprising that the behavior they encourage is comparable to that of gambling. There's an action the game company wants to encourage—buying loot boxes—and they design the loot box system to entice players to keep spending the money. To do this, they offer reinforcement: you'll win (by getting a rare reward) every now and then, providing a reward, a dopamine hit, and an incentive to keep on feeding money into the machine. Not every box will yield a valuable prize, and players don't know how many boxes they'll need to buy before getting a reward, a style of reinforcement called a "variable-ratio schedule." This reinforcement approach is known to encourage people to quickly try, try, try again to get the reward they seek, making it a powerful element of gambling systems. Slot machines work the same way.
The strength of variable-ratio schedule conditioning in the context of loot boxes isn't certain—we can't really say how much extra people are coaxed into spending. But the effect itself (and its presence in loot boxes) is beyond doubt.
Even more subtle design elements beyond the basic mechanics tend to encourage bad behavior. It's known that "near misses" give gamblers the "evidence" they need that they're close to a big win, encouraging longer play. When opening a Dota 2 loot box, all the possible rewards are shown spinning around. As they spin, they'll fade out until only one (or two, if you're lucky enough to also get a rare prize) reward is left: the one you've won.
This animation gives the impression that the options are being whittled down and that if the rare item had only hung on a moment longer you'd have won it. This near-miss stimulates further gambles. But it's entirely illusory: the actual reward is determined the moment the button to open the box is pressed. The animation doesn't mean anything, and there's no such thing as a near-miss.
Counter-Strike: Global Offensive has a similarly dishonest presentation: the possible prizes spin on a carousel, and whichever item is under the needle is the one you win. This means that you can miss a rare item by millimeters, if the needle just misses the item prize you actually wanted. Except it's fake; as with Dota 2, the reward is determined as soon as you open the box. The carousel, the spinning, the needle? It's all for show.
This video of a streamer opening CS:GO loot boxes shows (with a fair amount of foul language) these effects in practice. He sits there willing the carousel to spin just that little bit further (or getting frustrated when it rolls just past an item he wants), he gets excited when he sees a rare prize on the carousel, he detects "patterns" that aren't real. He ultimately ends up opening more boxes and paying more money then he originally planned.
Loot boxes work like gambling, and they're designed like gambling. They're designed to provoke compulsive reward-seeking behavior. Not in everyone, but certainly in a few, the "whales" that so many of these game economies depend on. I'm not a puritan; I don't think that gambling should be banned, and I've somewhat enjoyed traditional gambling in the past. But traditional gambling is regulated in important ways: minors are prohibited from participating, and there are often constraints on odds and win rates and perhaps even oversight to ensure the rules are followed. And in spite of these things, addiction remains an issue.
The low stakes and limitations on prizes might justify a different regulatory scheme for loot boxes than for, say, slot machines or table games. We already regulate raffles differently from casinos for much the same reason: they, too, have different stakes and prizes. But the underlying justification for those regulations—concerns over both fairness and addiction—apply to loot boxes, and so some kind of regulation is highly desirable.
If games companies want to continue to use loot boxes, that is—for now—their choice. I'd like to think that the employees at these companies would reflect on what they've done and perhaps decide that, in spite of the economics loot boxes offer, they don't really want to be involved with something so exploitative and with so much potential for harm. But if they want to continue to use loot boxes, they should at least acknowledge what they really are—gambling—and they should be regulated accordingly.